DENIALATION: The Problem That Fixes Itself

For a society that specializes in finding the easy way out, this is NOT it. One could not imagine a more lethal set-up than this one. Still, to the masses this will be a "Black Swan" event. Why? Because they've been well trained to ignore all risk...

This week, Omnibomb hysteria is imploding the reflation trades while inflation hysteria is simultaneously imploding the Tech/deflation trades. Neither risk poses any real threat to society at large. Each side of the political spectrum can take credit for ramping hysteria to lethal levels - the left on the pandemic and the right on inflation. Both sides politically motivated to stir up their base and serve their own agenda. What they have in common is that they have not even the slightest clue as to the financial consequences of their mass hysteria. Quite the opposite - central banks have given them the illusion that their pandemonium has been extremely lucrative. 

Negative real yields as generated by commodity speculation will be their death trap. Today's policy-makers continue to ignore the relationship between commodity speculation and inflation. As commodities rise they feed back into CPI, driving real yields lower. This in turn accelerates the asset flows to commodities. This asset-driven inflation spiral continues until such time as prices are fully disconnected from fundamentals. Then the bubble bursts and the spiral goes in reverse. OPEC is the latest party to succumb to inflation hysteria, promising to proceed with an output increase in January despite the risk of Omnibomb and the FOMC. Fooled by speculation and the negative yield feedback loop. Oil demand is nowhere near where it was pre-pandemic and oil volatility has exploded as the speculative premium unwinds.

Now, compliments of artificially collapsed real yields, the financial industry has convinced their clients to avoid cash. Yield seeking has reached the same excesses that attended the 2007 top. According to Ray Dalio, cash is "dangerous". Dalio has an unbeaten track record for trashing cash at key market turns. I suggest this will be his last and greatest opportunity. Going into the (second) most deflationary event in history after COVID, this crash will prove that nothing is further from the truth. Central banks can pivot and macro tour guide pundits with no skin in the game can pivot, but masses of investors cannot “pivot”. A hyper-hawkish Fed is not something that is "priced in". 

Jan. 23rd 2018: Holding Cash Will Feel Stupid

2018 was the market's first down year since 2009.

Jan. 21, 2020: Cash Is Trash

He said that at Davos when the pandemic was already well underway globally

And this week...

Cash Is Not A Safe Place Right Now

Why is it not safe? Inflation of course...

"You can reduce your risk without reducing your returns"

But that's not all, get 6 free ginsu knives if you call now...

Dalio's hedge fund strategy is based upon "Risk Parity" which is essentially a 60/40 stock bond allocation. What he is saying is basically being repeated by every financial advisor right now - the safest thing to do is to ignore risk and stay fully invested in highly correlated trades.

History will say that the true policy error was ignoring fatal levels of asset inflation and then freaking out at the first sign of price inflation. QE should have been ramped down a long time ago when Market cap / GDP first reached record levels. If it had been, then it's unlikely that tsunamis of retirement capital would STILL be rushing to accelerate history's largest bubble on the belief that it's increasing their likelihood of early retirement. For some reason people don't mind paying massively inflated values for overvalued stocks, but they freak out when the price of eggs goes up 50 cents. Apparently, they're not understanding the impact the former will have on their dining choices for YEARS into the future. If they were, then they wouldn’t be panic buying lost decades worth of return, while being mesmerized by unrealized gains.

Meanwhile we learned this week that insiders are rushing for the exits at a record rate. 

The list of widely ignored risks at this juncture are quite extraordinary by any standard. Taking any one on its own would not be so much a problem as taking down all of them at the same time:

Inflation mania/Fed policy error

Debt ceiling/Fiscal Cliff

China/EM Plosion

Asset super bubble/Y2K 2.0

Omnibomb

Consumer sentiment collapse

OPEC output increase

Record margin, inflows, valuations, issuance

Which gets us to the casino...

What's interesting about this week, is that despite the news of the COVID variant AND the news of Powell's new double taper, Emerging Markets outperformed the rest of the world on the week. Why? Because last Black Friday, EMs had a washout bottom having led the world down for several months. Subsequently, they have bounced this week in a three wave correction back-testing the key support line.

Bullish? Not necessarily. Here we see that worldwide Google searches for "BTFD" are the highest since 2018:

Another interesting piece of news this week is that after having been told there is a worldwide chip shortage, it turns out that Apple is seeing weakening demand for the iPhone. 

This article asserts that Apple has a problem with supply AND demand. Really? They just told their suppliers to dial back production, so I suggest the market is moving into equilibrium.

"CEO Tim Cook said the company’s last quarterly earnings took an estimated $6 billion hit due to the semiconductor supply shortage

If Bloomberg’s report is accurate, though, it suggests that the iPhone 13 demand might not meet Apple’s initial expectations even without the supply crunch"

The supply problem has been solved. 

Tech gamblers will be happy to know that after the morning  gap open crash, Apple rallied back all day yesterday and is now three wave corrective from the prior melt-up. All while Nasdaq new lows expanded to the highest level on an up day since March 2020 (I showed that chart on Twitter). 

The Nasdaq is heavily oversold and due for a bounce at any time. Nevertheless, the fact that it hasn't been able to rally for any sustained length of time is extremely bearish. The market has been extremely volatile this week, with alternating rallies and crashes. However, the crashes keep growing larger as the market stair steps lower. What it points to is the fact that the alchemy of index manipulation is no longer having an effect on the broader market as breadth disintegrates. Throughout this momentum rally, the various means of manipulation - central bank liquidity, momentum algos, and options manipulation have given investors a false sense of security. Now investors are fat and happy in a casino that is increasingly getting out of control as global risks coalesce to asinine levels in the background.

All of which points to the fact that the only true shortage in this world is in IQ. And that supply shortage is going to be exorbitant.

No sound required. I am not endorsing financial products.

Policy Error 2.0 aka. SUPER CRASH

This will be the fastest demand collapse in U.S. history...

Zerohedge and their vast array of useful idiots won. Their success is self-evident in the number of fools to follow. Testament to the strength of numbers. Ironically, they DOOMED their own prediction of runaway inflation by luring the ultimate fools - the Fed itself. In the event, they officially assisted the Fed to make the EXACT same mistake they made post-Lehman 2008 which is to believe that inflation is the greater threat to the economy and therefore ignore all of the risks that have coalesced at the end of the cycle. These people don't know that inflation ALWAYS peaks at the end of the cycle, because they banished cycles with printed money. Be that as it may, inflationist pundits can now take FULL pride in having trapped a generation of gamblers in dead end trades that are set to explode with extreme dislocation. A true measure of success. Now Powell is OFFICIALLY boxed into the fake inflation narrative. He is at least two steps away from realizing his colossal mistake as he contemplates accelerating the taper:

"The economy is very strong and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,”  Powell said in testimony before the Senate Banking Committee.

In a sign that elevated inflation could persistent for longer than expected, Powell conceded that it was “good time to retire that word [transitory].”

I was wondering today how many GOP Senators pounding the table for a tighter Fed right now are about to get wiped off the map financially? All of them. And the other side of the aisle won't be spared either.

Which raises the question, how DO we measure success under this form of casual fraud? I suggest this will be a Pyrrhic victory. 

To be sure, Zerohedge is the Jim Cramer of financial blogs. They are ad-sponsored entertainment and they reserve the right to change their mind with every trading day to ensure they are always "right". They are not per se "macro tourists", they are macro tour operators, because why pay for the ride when you can be the one leading it?

Unfortunately, this type of casual deception is now commonplace across the financial culture due to the fact that capitulating to this tsunami-magnitude mega bubble and ignoring risk is by far the most lucrative path forward. Which unfortunately leaves the sheeple ONCE AGAIN at the mercy of known con men. History will say that in the year Bernie Madoff died, the sheeple having been skeptical of markets since 2008 then crammed two decades worth of cash into stocks at the end of the cycle. Proving that in 2008 policy-makers took down Madoff's petty theft while bailing out the much bigger crime. The magnitude of which will now be revealed in biblical fashion to a society assiduously ignoring "corruption as usual".

Not only is inflation transitory, but all real-time indicators show that it has already peaked and is very quickly receding. The CPI that so many bloggers today refer to is stale data, weeks and months old. There are several indicators that track much more closely to inflationary trends.

First and foremost is Treasury inflation expectations themselves.

These have already peaked and they are starting to head in the direction of EM currencies which are collapsing like a cheap tent. 

Pundits appear to forget that it was EM currency collapse - led by China that caused the Fed to pause their tightening campaign in September 2015. Then they raised rates in December and exploded global markets. 

Here we see Brent Crude is deja vu of Q4 2018. Earlier on Twitter I showed Nat Gas getting monkey hammered the most since December 2018. This is the longest weekly losing streak for Brent since December 2018.

And why is December 2018 important? Because that is the last time Powell was forced to reverse policy and stop tightening because markets were imploding.

He will ultimately be forced to do the same thing all over again, but today's events just doomed bulls trapped in the casino unknowingly.

The correlation between oil and inflation is lock tight:

Here we see Gold / CPI. Is this a good time to buy?

According to those who believe in inflation...

YES it is!

The Baltic Dry Index is another leading indicator of inflation.

We just got news that Black Friday in-store sales were down -28% versus pre-pandemic and we also got news that online sales for Cyber Monday fell for the first time in history.

Which means it's becoming clear that the consumption orgy that fed back into inflation via the fake wealth effect, was merely demand pulled forward at the behest of con men looking to make sales. 

Consumer sentiment has only one way to go.

In summary, the Fed and the majority of consensus pundits were wrong last time when it hurt the most. The question is will their strength in numbers come through for them this time?

Or, will the sheeple FINALLY learn that the REAL policy error is trusting proven psychopaths.

"The transcript for that meeting contains 129 mentions of “inflation” and five of “recession.”

MAXIMUM EXCESS

Fittingly this orgy of consumption is self-destructing due to maximum excess. Far more biblical is the fact that most gamblers don't see it coming. Why? Because they expect infinite return on inequality.

ROI...

For a multitude of reasons, the pandemic took World inequality from asinine to lethal levels. Most pundits today blame central banks for pumping liquidity into bond markets and setting off a global hunt for yield that has bid up every asset class on the planet. They assiduously ignore their own role in embracing this asset bubble and informing us that anything that goes wrong with it is a "policy error", their legal escape clause from culpability. However, we know that these people are addicted to monetary stimulus. Had QE not been used then there would have been a lost decade for stocks post-2008 and there would be a retirement crisis right now. Therefore the ONLY risk that gamblers today worry about is monetary policy. They are now of the belief that the Fed alone controls the stock market. Which is why small increases in inflation set off mass hysteria within the financial community. At the 0% bound, asset prices have a theoretical infinite valuation, and per the textbook discount cash flow (DCF) model the only risk is rising interest rates. The bubble can grow to infinity so long as interest rates never rise again for any reason. The growth of said bubble does not in and of itself pose any risk. All of these investors and pundits are of course assiduously ignoring default risk. They ignore the fact that this so-called model puts all of the burden of deflation on the middle class. These bubbles increase the wealth of the rich while increasing the liabilities for everyone else. So why would the wealthy see default risk if they have been bailed out every single time that markets crash? The belief is that lenders can be bailed out every time while borrowers take on ever larger debts. 

I put my chart on Twitter of the OECD price/rent ratio as a means of showing the RELATIVE increase in the global property bubble over time. One troll said that rents will rise and flatten the curve. That's my point. The landlord receives the asset increase and the renter gets the liability increase. And we are to believe this can continue indefinitely. As I said in my last post, today's pundits are blind to risk. They are pandering to their audience which sees this consumption orgy continuing forever. We learned this past weekend that consumption among the wealthy has DOUBLED since the pandemic began, while consumption among the less well off has been reduced by HALF. Which absolutely proves my hypothesis that the wealth effect is driving consumption, NOT wages as is widely assumed.

"Higher-income households in the U.S. plan to spend five-times that of lower-income households this holiday season"

“While everybody is going through their day-to-day, super excited about this holiday season, we have a whole community of folks who are stressed out,” said Hilliard in a phone interview. “We’re seeing more [charity] demand this year than we’ve ever seen.”

“What starts off as a health crisis turns into a financial crisis if you’re in the lower-income [bracket].”

Now that the rent moratorium is gone, folks are freaking out.”

There are two sides to the price/rent ratio. One side is partying like it's 1929 and the other side is skipping the holidays this year.

And of course what is taking place within the U.S. is also taking place across the entire planet. Developed world nations are enjoying a massive recovery while Emerging Markets are imploding in broad daylight.

"Emerging market equities are now trading at their deepest discount to developed markets since 2004"

"The latest survey showed 37% of investors expect emerging market growth to accelerate over the next 12 months, down from 60% in July"

Here we see Chinese stocks are deep in the red zone on Monday morning, even as the major U.S. indices are bid. Nasdaq breadth (lower pane) is as of Friday close. 

Getting back to the casino:

Writing on Monday (mid-morning), the S&P futures bounced Sunday night at the 50 day moving average. We've seen this movie before several times this year. Each time, bulls won the battle of the 50 day and the market made a new all time high. Therefore the 'BTFD' team is betting it will happen again as complacency is rampant. 

Most of my technical indicators won't update until after the close, but I will give a sample at what I am looking at now.

For the record, Friday's crash was the worst post-Thanksgiving stock market implosion since 1941.

Per the theme of this post, "inequality", the Russell small cap VIX just saw its largest one day rise on Friday since 2018. In addition, the growth index is camped right at the 200 dma on Monday morning:

You will notice that Cloud stocks have a familiar pattern deja vu of this past February. A high, a higher high and then implosion  down to support, which is where we are now. After that another leg down. It's extremely rare to see two Tech tops in one year. I'm sure it will end happily every after.  

Note the expansion of new lows this time versus last time:

Oil is bouncing back on Monday, but last week oil vol reached the highest level since April 2020 as WTI crude pounded the 200 day. 

This chart of Tesla shows that the current blow-off top is deja vu of the one in February 2020: A 3 sigma high early in the month, a lower high late in the month attended by numerous Hindenburg Omens. 

And then the wheels came off the bus.

Biotechs are in late stage meltdown mode:

And fittingly, on Cyber Monday, online retailers are imploding, which can only mean one thing.

BTFD.

The Edge Of The Abyss

My euphemism for market crash is "Policy error". Meaning forty years of failed Supply Side economics, ending in rampant denial with NO WAY OUT...

I don't normally seek affirmation for my point of view, because I am usually disappointed at what I find. However, from time to time in a moment of weakness I will head over to John Hussman's site for validation. This past week his post was called "The Motherlode".  

"Across four decades of work in the financial markets, and over a century of historical data, I’ve never observed as many historical indications of a market peak occurring simultaneously"

Emphatically – and this is important – my intent here is not to “call the top” of this bubble"

So let me get this straight, we have the most concurrent indications of a market top in decades, but you are NOT calling the top. Why? Because to do so would risk credibility if the melt-up continues, that's why. 

To be fair, Hussman has been consistent in his view that this is the most overvalued market in history and hence the least investable long-term. However as we see, he is far too circumspect with respect to describing the current level of market risk. His viewpoint is almost entirely directed at market valuation and technical indicators. He scant mentions the economy, nothing on China, nothing on global currencies, nothing about crypto, nothing on the housing market, nothing on corporate debt and where we are in the cycle, nothing about consumer sentiment and no mention of inflation hysteria.

He is not alone. Most of today's stock market pundits are blogging in a vacuum. Without considering these other factors one would conclude this is a stand-alone stock market bubble, not so risky after all. When the Dotcom bubble burst, recession began a full year later. On the other hand when the housing bubble burst, recession began immediately. This time we have both - a stock bubble and a housing bubble. However this time the Fed is ALREADY AT 0% on the Fed funds rate. So they have no dry powder to resuscitate the economy.

Worse yet, he gets defensive about being a “perma-bear”. He apologizes for not taking part in this festival of idiots. Make no mistake,  I may be a perma-bear now, but I will gladly use the buy order when valuations return to earth. I call it buy low and sell high. It’s an old fashioned concept that today’s speculators have never heard about. What it comes down to is that no money manager would ever say “sell”, because as they always say if you get out you don’t know when to get back in. Hussman asserts that a universal sell order is not possible since all shares must be owned by someone. Every seller has a buyer. I suggest that is not true. Most share issuance over the past decades was corporate issued stock to cover options dilution. So no, the sheeple didn’t need to plow their life savings into human history’s largest pump and dump scheme. Of course everyone can’t sell in the middle of a meltdown.

Which is why on Black Friday yesterday there were blue light specials in aisle 11 of the Dow, but no takers. Cyclicals were bidless as there were concerns over a new mutant virus. Remember COVID-2019? That was two years ago. Two years later and we still can’t find our ass with both hands. At present, the people who are fully vaccinated want everyone to wear masks and lockdown at a moment’s notice. While the people who are unvaccinated don’t believe in masks or social distancing. It’s the full retard approach to pandemic management.

And remind me again the last time the market was melting up into a pandemic lockdown and got monkey hammered? Oh right February 2020.

Deja vu.

You cannot be too bearish right now nor too critical of this festival of idiots. But you can put your capital and credibility at risk by having ANY part in it.

It’s clear that the Fed has fully euthanized this society and now even the bearish are complacent. Ironically what this inflation hysteria has done is to take another Fed bailout off the table. The FOMC minutes this week indicated many Fed members believe QE should be rolled off FASTER. In 2018, the S&P was down -20% before the Fed reversed policy. This time the market will be down a multiple of that amount. Meaning way too late.

And then the REAL acrimony will begin. Record inequality will ensure that policy-makers are highly constrained from implementing a 2008 style bailout.

Another massive risk that is in no way priced in.

The worst approach of course are those pundits who claim we have runaway inflation but caveat every single article with asterisk “policy error”. Meaning this can all end suddenly and abruptly, and hence economic reflation is binary. Which is what we saw on Friday with the Dow down 1,000 points.

What all pundits have in common is that they are ignoring the reverse wealth effect and how it will impact already collapsed consumer sentiment when the air comes out of the bubble. They’ve been ignoring the role of the wealth effect on the way up and its effect on consumption. So no surprise they are ignoring what will happen on the way down.

In summary, today’s market commentary is fucking pathetic. Weak and idiotic. Grade F all around. A festival of idiots with the only concern being left behind.

THE CURE FOR HIGHER PRICES IS ON THE WAY

Panic buying in autos, homes, durable goods, commodities, cryptos, and Tech stonks is the overwhelming cause of today's "inflation". It's called the trickle down fake wealth effect and that premium is going to come out of markets via margin call. 

Lower prices are coming, and when they do liabilities will exceed assets and the sheeple will quickly realize they are bankrupt. At that point EVERYONE will understand the difference between inflation and deflation, however that lesson will have arrived 40 years too late...

This week the money printing cargo cult is going late stage euphoric on news that their Kool-Aid serving cult leader Jerome Powell has been re-nominated to lead money printing operations. On the one hand they embrace everything he does for them in casino markets, on the other hand they excoriate him constantly for economic inflation. You can't turn on the TV or radio these days without hearing about the "inflation" crisis. These people are plowing their life savings into the most overbought and overvalued asset markets in human history and yet all you hear about is the price of eggs going up 50 cents. 

No question, at the bottom of the wage scale, a combination of factors have made even relatively small price increases seem insurmountable. However, maybe it's time to consider the fact that working wages have been suppressed by mass outsourcing and mass immigration for forty years straight. As I showed in my last post, wages are going up the LEAST of all other types of prices. Which in aggregate is deflationary.

Now we learn that Biden is following Trump's (mistaken) lead in releasing oil from the Strategic Petroleum Reserve. Which is ironic, because it's highly likely that oil prices have already peaked. Any blind man can see below that oil is far lower today than it was in 2014, 2011, and 2008, none of which times oil was released from the SPR. Meanwhile, Trump released oil from the SPR in September 2019 which was only a few months before oil crashed the most in history - going negative in April 2020. I predict that will very likely happen again.

More importantly, note that oil demand is STILL only at 2013 levels (lower pane).

EIA data is here: 

https://www.eia.gov/petroleum/weekly/

Brent crude was down five week straight as of last week, which is the longest losing streak since March 2020 and before that Q4 2018. So far this week, it's bid as of Tuesday close.

So far, the Q4 2018 analog continues to loom large. Back then fiscal AND monetary stimulus were waning and global markets were rolling over.

This chart shows BOTH India and China getting in synch to the downside.

This chart shows that through Monday, there were five Nasdaq  Hindenburg Omens in a row, which is the most since Q4 2018.

Yesterday, new lows at an all time high (lower pane) set a new record going back to 1978:

Here is Nasdaq breadth relative to Q4 2018:

How's that for bullish?

Of course this implosion will make Q4 2018 seem like a good time by comparison.

Why? Because three years ago, positioning was cautious compared to today's absolute faith in printed money.

In summary, the cure for higher prices is coming. However, I suggest that most people won't be in a position to take advantage of them when they arrive.

Here we see that the U.S. aggregate bond index is highly correlated to Chinese risk assets:

Which makes THIS is a far more relevant Q4 analog:

"Sumamabitch!!!"

THE BIG LONG 2021

Momentum is building towards the day of reckoning. The magnitude of fraud in this era dwarfs any other period in history since 1929. It's clear that the Casino class is fully euthanized by the virtual simulation of prosperity and its acolyte QE. And so it is apropos in the year of Madoff that Michael Burry of "The Big Short" fame has just now capitulated. Whereas in 2008 waiting for subprime to explode he had adequate patience, this time around, history's largest bubble forced him to submit to central bank obeyance. The ultimate irony would be if THIS is the top...

Two Hindenburg Omens on the Nasdaq in the past week as new lows are accelerating each day. Today was the second highest number of new lows attending an all time high in Nasdaq history going back to 1978. The highest number (so far) was in July of this year. 

I've been pounding the table recently on this Ponzi reflation theme. Retail sales out today indicate there is no way to explain this level of consumption based upon wage gains alone. It's clear that the fake wealth effect is feeding back into the economy on an epic scale. That combined with "shortage" hysteria is creating a feedback loop of accelerating demand, which I call the Ponzi Hype Cycle. In order to understand this diagram first we must revisit the wealth effect:

"The wealth effect is a behavioral economic theory suggesting that people spend more as the value of their assets rise. The idea is that consumers feel more financially secure and confident about their wealth when their homes or investment portfolios increase in value. They are made to feel richer, even if their income and fixed costs are the same as before"

The central banks create the bubble, the bubble creates the wealth effect, wealth-driven consumption inflates earnings, and inflated earnings accelerate the stock rally. THIS is what is driving today's "inflation": 

This chart I created indicates that wages in no way explain the level of super-normal spending taking place right now. Everything is up across the board, EXCEPT wages, which are up the LEAST and below the rate of CPI.

We now have simultaneous pull forward in demand across retail sales, durable goods, housing, autos, and technology. ALL at the same time.

It gets worse.

Economic opportunism and inflation hysteria has triggered panic buying and thereby pulled forward consumption from 2022 into this fourth quarter. Consumers have been told to expect "shortages" during the holidays, and they have responded by panic buying. Ironically, they have made shortages a self-fulfilling prophecy. Which is a disaster waiting to happen. 

One would think that economists would realize that wages in no way explain this level of consumption, but they don't. Instead they are wed to their traditional models which link the unemployment rate to the level of inflation. Due to the high level of long-term unemployed following the pandemic, the  official (U3) unemployment rate is artificially low right now. In addition, the combined effects of mass outsourcing, mass immigration, and mass automation have lowered capacity utilization to all time lows for this point in the cycle. While the trade deficit is record wide.

Meanwhile, the collapse in consumer sentiment taking place in broad daylight has been assiduously ignored. Today's pundits are more interested in using stale economic data from last quarter than to look at what consumers are saying now. 

Got that? 

The outlook is bright, just as it was in 2007/2008. These people have a history of being wrong when it hurts the most, so why stop now?

 

In summary, this is now officially the Big Long.

Wall Street already has one foot out the door on this gong show vis-a-vis their "policy error" narrative. Meaning no matter what the Fed does, if it implodes they will just blame the Fed. Nevermind that this approach leaves their clients death trapped in the casino hoarding inflation trades. 

There is no point in being overly academic at this juncture. The policy error was believing that printed money is the secret to effortless wealth. Binary outcomes that turn from extreme inflation to biblical deflation overnight are the domain of proven con men.

Melting-up To Melt-down

The common investment theme for 2021 is rampant fraud. Below I delineate the stocks/ETFs/sectors/assets that are most likely to implode the market. Any one of these alone would not likely be enough to create a meltdown, but if they all roll over at the same time the HFT algos masquerading as market makers will go critical mass. Today's pundits are sanguine because markets are at all time highs and the Dow/S&P in no way convey the risk that lurks beneath the surface. Whenever markets are going up, everything is bullish. But, what's the "catalyst" for meltdown? The catalyst is "Sell"...

First place of course goes to Tesla, EVs, green Energy and the entire auto sector, all of which are hyper overbought.

The melt-up started three weeks ago with Tesla's third quarter results which beat expectations (Oct. 20th). Then it got a boost when Hertz announced they were buying 100k Tesla's for their rental fleet (Oct. 25th). All of that sparked a Reddit-driven options "gamma squeeze", which is a short squeeze using call options. That melt-up in all things EV/Auto continued up until the COP26 conference this past week and the passing of the Clean-Energy infrastructure bill which gets signed tomorrow. In my opinion all of these catalysts are capping off a mega melt-up in Tesla that started two years ago in Fall 2019 and went parabolic during the pandemic. 

If Tesla folds back below the blue line then this entire blow-off top is a bull trap that will get fugly. Note that the clean energy ETF is three wave corrective. 

On a related subject, as I've shown many times the entire auto sector - including Ford, GM, Auto Nation, Car Max, and of course Avis is ludicrously overbought. 

This is all driven by the "car shortage" fraudulent narrative:

Next, the semiconductor sector has also seen a late stage melt-up. The leading stock is Nvidia which is a heavy hitter in terms of market cap and daily dollar trading volume.  Nevertheless, the entire sector is now massively overbought.

This sector has been melting up due to the "semiconductor shortage" false narrative. This era has seen record semi demand now conflated as a supply shortage. I also believe this to be the blow-off top phase of a decade long rally:

Also on the topic of Tech stocks, yesterday I showed a chart of "TRINQ" on Twitter indicating that there has been no RISK OFF in Tech for the past decade since the 2011 debt ceiling. Ironically, another debt ceiling debacle is only weeks away. That long-term chart is by no means a precise timing indicator.

Nevertheless, here we see Microsoft the most valuable company in the market right now is the most overbought since the Feb. '20 high:

Transports are also hyper-overbought. Some say it's because of Avis, but Railroads are at new all time highs and below we see the Trucking sector is parabolic. Meanwhile, I showed a chart on Twitter yesterday indicating that this is the largest coincident melt-up between Tech and Trucking since the January 2018 blow-off top.

No discussion of meltdown risk would be complete without a discussion of the $2.8 trillion crypto sector which now equals 2 x 2008 subprime in magnitude. Roughly half of that market cap consists of shitcoins which everyone KNOWS are pump and dump schemes.

The other half is Bitcoin which has now seen widespread adoption, institutional buying, and multiple ETFs. I showed a chart on Twitter yesterday indicating that Bitcoin is highly correlated to the NYSE Composite. And yet, these cryptos are all getting bought with both hands under the fraudulent "inflation hedge" hypothesis. If there is one asinine hypothesis that this society must live with for the rest of time, it's that one. And many other dumbfuck ideas these morons accept without question.

This article in National Affairs magazine argues that Bitcoin is safer than gold and should be considered by the U.S. Treasury. You can't make this shit up. I will not rebut the entire article because he includes some currency history which I happen to agree with, however, I will say that the author has never heard of Japan, their record deficits and record money printing and their currency which 30 years later is STILL viewed as the global safe haven. All due to the power of deflation which is about to get far worse before it gets better.

The main problem with Bitcoin is that it can't scale. It has the carbon footprint of Pakistan. Every Bitcoin transaction consumes $100 in electricity, even just buying a cup off coffee. Yes, you read that right:

  

For the record, the top performing sector year over year is the fossil fuel Energy sector. Ironically, these stocks languished under Trump who was pro-fossil fuel and then they sky-rocketed under Biden's green energy plan. Mostly of course due to the pandemic unlockdown. Year over year most Energy ETFs are up well over 100%. However, there are few if any Energy stocks at all time highs since they were the worst performing sector in 2020.

Therefore, instead of showing oil stocks I will show the construction/infrastructure sector which is the most overbought since the Fall of 2008:

Finally, I show the Nasdaq with breadth and down volume. The market is Jan. '18 overbought, breadth is the worst at an all time high in history. And as we see, down volume has been increasing with each selloff since 2018.

In summary, 2021 will forever be known as the year when fraud and criminality were "democratized" amid rampant cynicism, greed, and denial.

Capping off over a decade of non-stop monetary bailouts for the rich.